Judge rules that 'fulsome disclosure' is needed of any potential for additional assessments or costs
There’s a good reason why a potential condominium buyer should look over the status certificate for the corporation, as one purchaser in Waterloo, Ontario, recently found out. But it is just as important, an Ontario Superior Court of Justice judge said in a recent ruling, that the status certificate indicates the potential for special assessments or costs.
“The status certificate is an overview for a prospective purchaser. It should flag in clear language any financial concerns that should prompt a prospective purchaser to dig deeper into the “fine print” of all the attachments . . . including the auditor’s report,” wrote Judge Michael R. Gibson in Bruce v. Waterloo North Condominium Corporation No. 26, 2023 ONSC 2995.
He made this comment in deciding that condo purchaser Adam Bruce is exempt from paying any special fees related to water main repairs at the condominium complex at Bluevale Street in Waterloo.
Judge Gibson added that it is “unrealistic” to assert that Bruce should have been expected to dig deeper into the status certificate when one paragraph gave the “all clear” regarding the corporation’s finances.
“Ought he have retained a lawyer to review the status certificate and advise him? Patently, yes. It is always prudent for a prospective purchaser to do so, and choosing not to do so potentially exposes them to risk. But I do not accept the [corporation’s] submission that his failure to do so in this case made Bruce the author of his own misfortune, given the clear summary statement provided on behalf of the corporation.”
Lawyer Natalia Polis of Lash Condo Law in Toronto says the Bruce v. Waterloo North ruling also sends a message to condo corporations.
As a lawyer who often represents condo corporations and boards, Polis recommends that “if there are any instances that could potentially give rise to a common expense, even if it doesn’t come to fruition, it should be noted in the status certificate.” It would avoid the situation that forms the basis of this case.
Polis says the unfortunate result of this decision for the other unit owners is that, because of the faulty status certificate, “what is going to happen is every unit in the corporation other than the unit that was successful in this application will have to subsidize the costs of that exemption.”
Importance of a status certificate when buying or selling a condo
The case dates to the heated housing market of June 2021. Bruce and his agent visited the unit on the same day set for offers. He instructed his agent to obtain the status certificate – a disclosure document that condominium corporations must provide to prospective purchasers of units upon request.
That day, the agent received a status certificate from the seller’s agent dated June 8, 2021. In paragraph 12, the status certificate stated: “The Corporation has no knowledge of any circumstance that may result in an increase in the common expenses for the unit. Except: The Corporation’s fiscal year end is August 31, 2021. Therefore, monthly common element fees may be increased in accordance with the new budget, which has yet to be determined.”
The real estate agent summarized the contents of the status certificate to Bruce, concluding that the finances “looked to be in order,” that the reserve fund “seemed to be properly funded,” and that there was “nothing to suggest there might be any special assessments anytime soon.”
Relying on the status certificate, Bruce made an offer of $535,000, which was accepted, entering into a binding and irrevocable agreement without conditions. Bruce did not retain a lawyer to review the status certificate, and he did not read all the information in the status certificate, relying on the summary provided by the agent.
However, the agent did not mention a note in the auditor’s report regarding water main repairs and the possibility of a special assessment or loan application. The realtor said she explained to Bruce the risk of not having a lawyer to review the status certificate.
In May of 2022, Bruce learned that the corporation was seeking authorization from the owners to borrow up to $2.5 million to repair or replace its lift station and water main. Bruce’s expected share was around $34,000, payable as part of a special assessment or a loan.
Bruce noted he is unsure how long he will live in the unit and would need to opt into the loan as he could not afford the special assessment.
Bruce contends the corporation “failed to disclose material facts about an extremely expensive project that it knew about for years and was in the process of tendering for, and that he relied on the clear and plain language of the status certificate that there was ‘no circumstance’ which ‘may’ lead to a special assessment or a loan.”
He asked the court for a declaration under the Condominium Act that the unit is exempt from “any special assessment, levy, loan or obligation to contribute towards the corporation’s cost to maintain, repair or replace any asset or property not disclosed in the status certificate, including the water main and the lift station.” Bruce also asked for a declaration that the conduct of the corporation is “oppressive and unfairly prejudicial” and that it unfairly disregards his interests.
The corporation’s position is that the status certificate contained all material information and noted the auditor’s report remarked that the corporation had tendered for repairs to the water main. It also contends that even if an exemption can technically be provided from both the special assessment and or loan, Bruce is not entitled to this because there is no liability on the part of the corporation. Bruce’s alleged injuries result from his own conduct, “as he failed to properly review the entire status certificate and ignored documents which formed part of it, and failed to retain a lawyer to review and advise upon the status certificate.”
The corporation also argues that even if it threatens to enforce payment, this is not oppression, as it is not unfairly prejudicial. The corporation has a statutory obligation to collect common expenses, and equity follows the law and “cannot oust or override plain statutory regimes.”
The need for fulsome disclosure
However, Judge Gibson ruled that Bruce was entitled to rely “on the clear and unequivocal statement” that the corporation “has no knowledge of any circumstance that may result in an increase in the common expenses” for the unit. Yet the need for repairs has been known since at least 2017, and if this information had been disclosed in the status certificate, it would have flagged the potential for a special assessment or loan.
“It was obvious to any objective observer that the cost would be more than the reserve fund contained and would require a special assessment or a loan.”
The judge agreed with Bruce that the act requires “fulsome disclosure, not minimalist.” He added that “only with full disclosure can the prospective purchaser assess their own risk and make informed decisions about the purchase.” Judge Gibson said the author of the status certificate misunderstood “in thinking that disclosure was only required if the cost was a certainty, not a possibility,” and Bruce was entitled to rely on the statement that there were no known circumstances that could raise fees.
While Bruce should be entitled to an exemption, the judge agreed with the corporation that Bruce should be allowed an exemption from the special assessment only for the period he owns the unit, and that the exemption should not be extended to subsequent owners of the unit. Any prospective purchaser must be advised by Bruce and the corporation, through the status certificate, of this amount.
On the issue of oppression, the judge agreed that inaccurate disclosure to condo purchasers such as Bruce was oppressive conduct. “It would be oppressive and unfairly prejudicial to impose on Bruce the cost of a project that [the corporation] had known about for more than four years and which it knew, based on its audited statement, could result in a special assessment or a loan.”
However, he agreed with the corporation that Bruce should not be entitled to legal fee “damages,” as his “would circumvent the unique framework governing legal costs.”
Instead, if Bruce “wishes to pursue a claim for reimbursement for costs on an elevated scale, these may be included in his cost submissions.”
Polis says that while it’s “always good to err on the side of caution,” someone selling their condo needs to tiptoe “a fine line” about a status certificate that may mention something that doesn’t apply to a particular unit.
For example, a status certificate might note the complex used Kitec plumbing – a type of product prone to pinhole leaks and the subject of a settled class action lawsuit.
In many cases, it has been removed in some units and not others. If the status certificate mentions Kitec plumbing, but the unit in question does not, “that needs to be noted – that the Kitec was removed,” Polis says. “If not, it may hinder the prospects of selling the unit or decrease the value of the unit” if the status certificate mentions it.